M&A and ESG go Hand-in-Hand at Worldwide Industrial Group CIE Automotive

Yesterday: M&A Shaped the Company CIE is Today

CIE Automotive (“CIE”) is an industrial group specialized in high value-added processes. We are a global full-service supplier for components, assemblies and sub-assemblies and have 114 production sites distributed across 108 locations in 16 countries covering four continents.

During the last 25 years, we have integrated more than 100 companies

M&A has been essential in building the company that we are today. During the last 25 years, we have integrated more than 100 companies through Greenfields, JVO’s and M&A. Our journey began in Bilbao, in the Basque Country, where there is a lot of industry and especially strong Automotive industry. A highly atomized industry, there are thousands of small and mid-sized family-owned businesses here dealing with the large OEMs. CIE was born in this context and with two very strong beliefs: first, that together we would be stronger and second, that in order to mitigate risks in such a competitive sector, diversification would be critical. And thus, our M&A story began.

Through M&A we have created a healthy geographical balance with each region’s contribution critical to the overall success of the company, which is extremely important in current times. We are also able to invest according to our own profitability return criteria because we have no dependence on a single customer. M&A has also allowed us to have such a diversified technology portfolio that we have become a one-stop-shop for customers, offering any component in any technology in any part of the world at the same time.

This geographical, commercial and technological diversification is all tied to qualitative ideas:

• Investment discipline: While we are an industrial company, our objective is not to produce components, rather profit from producing components.
• Decentralized management: We have 26,000 people in CIE, with less than 80 people at CIE HQ located in Bilbao. Our only role at HQ is to support the plants, where the business is and where the cash is generated; they are the decision makers.
• ESG: Firmly implemented into CIE’s business model.

Today: How we Approach M&A

In every acquisition we make, there are specific drivers. For example, in 2019 we acquired Aurangabad Electricals Ltd. in India. The primary driver behind this acquisition was the increasing demand in the sector for aluminium components to lightweight vehicles. At the time, we didn’t have the capacity for aluminium injection in India, so by including it in our portfolio we are able to provide a better and more complete service to our clients. We also gained new customers, as well as moved into a new segment, the two-wheeler market, which is huge in India.

Another example is when we acquired Inteva R.S., the third largest player in the world for roof systems. This was a strategic move, as we believe that roof systems will be a very important part of vehicles in the future looking at the megatrends driving demand in the market, such as the comfort of the vehicles.

Taking the gear component production as another example, we had production in Italy which serviced the European market, and in India to service Asia. However, we wanted to be a global gear player, but were missing the American market. Therefore, we strategically acquired an Italian company also servicing the American market. We reinforced our position in Italy and Europe and we are now a global player.

Tomorrow: Two Parallel M&A Strategies

If we now look towards the future, we see two different types of M&A strategy in parallel:

Consolidation: CIE was built on consolidating small family-owned businesses of which there are thousands, and we will continue to be a consolidation vehicle. Many of these companies have reached their maximum growth capacity on their own, but under the CIE umbrella will have access to new resources, clients, R&D, and so on.

Because we have no dependence on a single customer we are able to invest according to our own profitability return criteria

Strategic: From time to time, when we see the right opportunity and feel the company is ready from a management team and a financial point of view, we will do large strategic transactions that will allow us to take significant quantitative and qualitative steps. We have done this twice to date.

Our long-term strategy is for very ambitious growth and M&A will continue to be a key tool for us. Because our organic growth level is so strong and our cash generation level is so high, we will be reducing our leverage significantly over the next years, which will increase our firepower to go “M&A shopping”. We project we will have €1.5 billion available until 2025 to spend on corporate transactions including buy-backs, the purchase of minorities and M&A. In summary, M&A is part of our history, present, and very definitely, our future.

ESG is Key to Sustaining our Company’s Future

Over the last few years, ESG is all everyone has been talking about. At CIE it’s something we have been doing for years. In October 2015, we joined the United Nations Global Compact, an international initiative that promotes the implementation of the 10 universally accepted principles which encourage business social responsibility. Through this we develop, implement and disseminate policies and practices of business sustainability.

Another significant step in our commitment to sustainability was the launch in 2021 of CIE Automotive’s ESG Strategic Plan 2025, taking into account the needs of all our stakeholders, as well as our commitments to them.

The plan is based on four pillars:

• CIE Culture: Identifying, empowering, retaining and attracting talent
• Ethical Commitment: Respect for, compliance with and development of the ethical framework
• Eco-efficiency: Efficiency in production and improvement of environmental impact
• Active listening: Proactivity and continuous communication with our stakeholders

These four pillars all have one common driver: engagement. By this, we mean engagement to:

• Governance: Transparency and legality. Compliance policy available to everyone. Worldwide ESG training. Risk analysis and mitigation. Training on Code of Conduct
• Environment: Measure and reduce environmental impact from a lifecycle perspective (cradle to gate scope). For example, 100% of energy production in CIE production site in Spain derived from renewables. Targets at European level by 2030 to reduce energy consumption by 2% and waste emissions reduction by 5%
• Sector: Worldwide collaboration in research programs. Two percent of our annual revenues are invested in R&D. Launched project to integrate ecodesign and circularity criteria in the development and industrialization process. R&D roadmap focused on: Decarbonization, Sector 4.0, New mobility concept, and Safety & Security
• People: Ensure CIE is Diverse, Decentralized, Safe, and Empowering. Objective is to attract and retain key people, which is fundamental to CIE’s organic growth
• Supply Chain: Critical in the Industrial sector to have a high quality strong ESG supply chain. Measuring, controlling and developing the supply chain is key to achieving CIE’s 2025 ESG Plan. Objective is to achieve sustainable and stable supply chain management to minimize ESG risks. Purchasing represents 70% of total revenue and with circa 25.000 suppliers worldwide goals can only be achieved by taking the challenge to the local/purchasing teams at any plant level. We work with small, medium and large size companies, but it’s important to encourage local sourcing to avoid logistics costs and supply problems as experienced in the past. All this without forgetting that service, quality, and price are important
• Financiers: Maximizing the volume of ESG-linked financial operations, making CIE’s debt “green”. Our primary debt, the syndicated facility, has been converted green, as well as several other lines with financiers including the European Investment Bank. Transparency - we are continuously monitored by a third party, Moody´s VigeoEiris. If our yearly ESG score goes up, our spread cost is adjusted and we pay less spread on those “green” financial lines, but if there is no improvement, the spread price is increased. Our estimation is that by the end of 2022, around 93% of our net financial debt and around 63% of our gross financial debt will be linked to ESG criteria, therefore, demonstrating CIE and its financiers absolute commitment to ESG and these criteria
• ESG Agencies: Several independent agencies currently evaluating CIE’s ESG performance, most of them unsolicited and using our public information. The reports are demonstrating very positive trends in the rating

In order to monitor our performance internally in the application of our ESG principles and policies, CIE elected a Transversal or Cross-Group Committee. It is made up of 11 members from different areas and supervised by the Board of Directors through the ESG

Commission. The 2025 ESG Plan was released in mid-2021 and we are proud to report that we achieved all the targets defined for 2021, which is no easy task. At CIE we are committed to ESG and to doing all what we can to make the world a better place to live in.